Will the Housing Recovery Lift MBIA's Earnings?

On Wednesday, MBIA (NYSE: MBI) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, kneejerk reaction to news that turns out to be exactly the wrong move.

The housing bust sent mortgage insurance companies scurrying for cover, as MBIA and its peers found themselves liable for billions of dollars in insurance payouts due to defaulting homeowners and plunging home prices. Now, though, prices have hit the bottom and have started to rise. Let's take an early look at what's been happening with MBIA over the past quarter and what we're likely to see in its quarterly report.

Stats on MBIA

Analyst EPS Estimate

$0.15

Change From Year-Ago EPS

200%

Revenue Estimate

$104 million

Change From Year-Ago Revenue

(24%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Can MBIA's earnings keep rising higher?In recent months, analysts have gotten a lot more optimistic about MBIA's earnings prospects. They've boosted their estimates for both the first quarter and the full 2013 year by more than 60%, and the stock has followed suit, jumping more than 17% since late January.

MBIA has undoubtedly benefited from improving conditions in the housing market. Industry rival Radian Group (NYSE: RDN) has been able to boost its underwriting volumes lately in light of the recovery in housing, and with prices moving upward, risks of having to pay out on newly written insurance are declining for both Radian and MBIA.

But most of MBIA's attention has focused squarely on its lawsuit with Bank of America (NYSE: BAC) . In early March, a New York judge rejected banks' arguments that MBIA's 2009 restructuring to separate its municipal-bond and mortgage-backed securities divisions amounted to a wrongful asset transfer. Yet just last week, MBIA lost a pretrial motion for summary judgment on the issue of whether B of A assumed mortgage unit Countrywide's liabilities for alleged misrepresentation on Countrywide loans that MBIA insured. With the insurance company having settled with Flagstar Bank to receive $110 million in a similar suit, MBIA hopes that an eventual settlement with or judgment against Bank of America will be much more lucrative.

In MBIA's earnings report, watch for how the company's core business is performing. With the B of A lawsuit representing a major distraction, it's important to focus on whether the insurance business rebounds fully as housing improves.

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